Overcoming the Fear of Retirement

Hippopotomonstrosesquipedaliophobia. Ironically this is the term used to describe those that have a fear of long words. There seems to be a tongue-twisting word to describe every fear imaginable, but what do you call someone who has a fear of retirement? Well, there doesn’t seem to be one but it is a genuine fear and the figures prove it. According to the Pension and Lifetime Savings Association, just over 30 million working age people fear they have too little saved.  
How much does it cost to retire?
Very few things in life are free and enjoying your retirement comes at a price. Looking at the figures, it’s not hard to see why so many are worried about their financial future.  

A breakdown of retirement costs

The fear effect                                                                               
The fear of running out of money could be one of the reasons why more people are working past retirement age. Baby boomers may have benefited from better pension rates but that doesn’t seem to have tempted them into retirement. As of September 2018, data from the Office of National Statistics revealed 1.26 million of those 65 and over were still working. To put this into context, there were only 478,000 over-65s still in work when data was first collected in 1992.  
What is the solution?
From private pensions to investment, there are a number of ways to prepare for retirement. When it comes to investments, there is an unexpected one that is picking up traction. Taking out a mortgage when you retire is crazy, right? It might not be as crazy as you might think. Commercial Trust Limited, a specialist broker based in the UK, found that buy-to-let applications have risen by nearly 40% for over 55s. In 2018, applications made by those aged 65-75 increased by 5% from the previous year. The rise in retirees taking out a buy-to-let mortgage could be down to changes in the way we access pensions. Thanks to the introduction of pension freedoms, people can now choose how they take their pension and even withdraw the entire amount as one lump sum. Having access to funds in this way means that those with enough in their pension pot are able to afford the larger buy-to-let deposits. Banks are getting on board with the idea of older people borrowing money too. Santander recently increased its age criteria on buy-to-let mortgages and others seem to be following suit. Data from Moneyfacts shows that of the 2,151 buy-to-let products on the market, 52% have a maximum end-of-term age of 85 or over. A further 19% have no maximum age limit at all.  
Is buy-to-let a good investment?
This all depends on your circumstances but here is why the number of retirees investing in property might be increasing. Buy-to-let allows you to generate an income from rent paid by the tenant. The rent also goes towards mortgage repayments, meaning banks are more confident that you can manage the repayments despite no longer having a working wage coming in. We have already touched on pension freedoms and lenders increasing their borrowing age but there is more here that makes this a viable investment. The Land Registry House Price Index shows a fall in property prices month-on-month. This means that buyers can take advantage and grab a bargain. It’s not just property prices that are taking a tumble, Brexit uncertainty has caused mortgage rates to fall. Since the 2016 referendum, fixed rates have dropped by nearly 0.5%. Lower rates in combination with good rental yields make the market appealing for potential investors.  
What’s the drawbacks?
Before you go to your pension provider and withdraw all of your hard-earned savings, there are some drawbacks to be aware of. Your pension income will ultimately be taxed at the appropriate rate, taking into account other sources of income. The maximum income tax is set at 45% for incomes £112,500 and over. Because pensions are taxed under PAYE, if a lump sum of more than £12k is taken then an income tax of up to 45% could be applied. Although the tax can be claimed back, it could cause significant cash flow issues. Any property that you own counts towards your estate which means you could be liable for higher inheritance tax. The property may be at risk of care costs if you require long-term care in the future. Your financial gain could also be impacted by legislation changes. New rules and regulations for Landlords mean that renting a property requires more work and potential expenses. The impact of Brexit on fixed rates is a double-edged sword for investors. If the Bank of England increases their base rate it could have a knock-on effect and increase your monthly mortgage repayment.  
The bottom line
It isn’t just property investment you could consider, there are a number of ways to secure your financial future. Speaking to an independent financial advisor can give you a better idea of the options available that best suit your situation. If you decide to go down the property investment route then remember, there are pros and cons to buy-to-let mortgages and it’s not something you should enter into lightly. Do your research and speak with a professional to make sure it is the right move for you. As we said before, there is no official term to describe someone who has a fear of retirement. Maybe there doesn’t need to be. Your post-working years should be a time to enjoy life and with the right retirement planning, it doesn’t need to be something to worry about.

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